HAMP Offers New Hope for Borrowers

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Are you considering applying for help from a foreclosure prevention program? Here's some good news. Recent changes to the largest foreclosure prevention program, the federal Home Affordable Modification Program (HAMP), should help the program work much more smoothly.

Over the last year, the press about HAMP has been overwhelmingly negative. Recent stories like this one in the Wall Street Journal point out that one-in-every-four borrowers who entered the program with trial modifications to their home loans have since been thrown out of the program.

Hundreds of thousands more borrowers have waited with trial modifications that went for six months or even longer, often racking up heavy fines and fees in the process according to the story, even though the trial period is only supposed to last three months.

Why were so many people kicked out? And how can the program be made to work?

It turns out different banks took different approaches to working with the HAMP program. The crucial difference between these groups shows how the HAMP program might be able to turn itself around and do a better job helping homeowners.

Some lenders let borrowers into the HAMP program by first verifying their incomes. Others put borrowers into the HAMP program with unverified, "stated" income, according to HAMP officials. Only after the trial modification process had begun did these banks begin the process of verifying a borrower's income.

That simple difference, whether a borrower's income was verified or not before starting a HAMP trial, has made a huge difference for the program. According to the Treasury, each of the top loan servicers that verified borrower incomes has turned more than half of its trial modifications into permanent modifications. Each of the top banks that did not verify borrower incomes has turned fewer than half of its trial modifications into permanent modifications.

Banks that did not verify incomes have also taken longer to process trial modifications. The Treasury ranked loan servicers by how likely their active trial modifications were to be more than six months old. Trial modifications are supposed to end after just three months. Of the top seven banks with the oldest trial modifications, six did not verify incomes before beginning HAMP trial modifications.

But some banks say borrowers must shoulder a portion of the blame. According to a January statement by JPMorgan Chase, for every 100 trial modifications begun through the fall of 2009, a quarter had not paid as agreed. Another 29 borrowers did not submit all the required documents. "Many borrowers return forms missing key information (signatures, Social Security numbers, etc.) or do not return one of four required documents," according to a statement from Chase. Another 13 out of a 100 borrowers are not eligible for HAMP but will qualify for another type of loan modification and 33 out of 100 borrowers are able to be underwritten for permanent HAMP modifications.

Chase says that it has moved mountains to get needed information and documentation from borrowers with trial modifications. Each trial borrower with missing documents gets 35 letters, 12 phone calls, and two visits to their homes from Chase employees trying to get the documents.

However, some borrowers with trial modifications continue to claim that loan servicers often lose the documentation that they send, according to the Wall Street Journal story and more than 300 comments to this HousingWatch story by AOL readers sharing their personal experiences with loan servicers in HAMP.

So why did any banks let people into the HAMP program using just stated income? "We were using stated income to get people into trial modifications as quickly as possible," a spokesperson for JPMorgan Chase told HousingWatch.

At least there is some good news for the future. Starting June 1, lenders and loan servicers will be required to verify the income of borrowers before they start a temporary loan modification. And once a temporary modification starts, it will automatically turn into a permanent modification if the borrower makes three months of payments on time. Government officials already have clarified that the $1,000-per-borrower HAMP offers to participating banks will only be paid if the borrower's loan modifications become permanent.

Also, in July, the HAMP program will also start to publicly report on more aspects of the performance of loans servicers in the HAMP program, from customer complaints, to hang-up rates, to compliance with the rules of the program.
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